Monday, December 13, 2010

LIC investments guided by various regulations

High-level committee set up to examine systems, procedures: MD.

LIC has a 73 per cent market share in the life insurance industry. We have nearly 27 crore policy holders. It is not a new company. We are confident that the trust of the public and the nation is with us

Mr Thomas Mathew, Managing Director, LIC of India

Officials of LIC and LIC Housing Finance were among the eight people accused by the CBI in the recent bribe-for loans case. The top management of LIC swung into action immediately, appointing a high-level committee to probe the matter.

The corporation has also launched a major campaign to reassure its employees, agents and policy holders, about the solidity of the corporation. In an interview to Business Line, Mr Thomas Mathew, Managing Director, LIC, said the systems and procedures in both the institutions are foolproof, and that all investments are made according to approved guidelines.

Edited excerpts:

You have set up an internal committee after the CBI arrested your secretary (investments) in the recent alleged bribe-for-loans case. What is the outcome?

We have set up a high-power committee with executive directors, heads of departments. They will look into the systems and procedures. We know it is fool proof, time tested. Still the committee will once again examine whether any tightening here or there is required. That is being studied. The committee will submit the report in a fortnight.

The allegation is that your official had leaked out information on LIC's investments?

That is an allegation. We have nothing to comment on it.

LIC's investments are guided by various regulations and guidelines. We make our investment decisions on the basis on the Insurance Act, IRDA investment regulations, investment policy approved by the board of LIC, investment committee guidelines and our standard operating procedures. All investments to be made or ought to be made are reported every month to the investment committee. Every transaction is reported to them or decided by them. So, in this process, one person alone cannot make any decision in LIC.

Have you stopped investments in companies that were named in the case?

Our investments all along are on the basis of these guidelines I mentioned and also on the basis of the research done by our department. We make investments after looking into the fundamentals of the company and it is on a long term basis. So some happening in the market does not deter our investment philosophy. I am not saying that I am investing or not investing (in these companies).

Our total investments — in equity, Government securities, corporate debt, NCDs, infrastructure — are to the tune of Rs 2 lakh crore. We are continuing with our investments on the basis of our guidelines.

There were news reports that the Finance Ministry has constituted a committee to look into the investments made by LIC from 2007. Any comment?

The Government is our owner. Off and on, they call for a review and inspection.

IRDA conducts inspection. There is a concurrent audit, statutory audit and internal audit. Ministry also calls for the details. We have informed the ministry all the details. The Finance Minister also came out in the open and said that there is no problem in LIC. LIC is a stable and strong organisation. One or two incidents will not affect the working of LIC.

What about reports on losses in the case of some schemes?

It is in three of the very old schemes. LIC's is a pooled account. It has to be seen in totality. It is not at all a cash loss.

Do you think the recent incidents in any way tainted the image of LIC?

LIC has a 73 per cent market share in the life insurance industry. We have nearly 27 crore policy holders. It is not a new company. We are confident that the trust of the public and the nation is with us. Some stray incidents here and there and some media reports will not hamper the confidence and trust of the public in us.

But we are not complacent about it. We have gone very aggressively on a communication campaign. First, internally with our staff. We have 1,15,000 employees and 14 lakh agents. We wanted to tell the truth to them and the public.

What about LIC Housing Finance?

Regarding, HFL, we want to say that there is no systemic failure.

Immediately after hearing from the media (about) this, we have set up an internal committee to look into the processes and procedures over there.

The committee has gone into the details and submitted a report to the board and to the audit committee. We have found that all the loans in the company are performing assets and backed by sufficient security as per our valuation. We have also found that all procedures for sanction of loans, consistent with the board approved guidelines, have been followed. And proper systems are in place for sanction and disbursement. The news that has come about is only about 8 companies initially and the quantum of the outstanding balance in that is only Rs 388 crore. It is a very small amount compared to the total book size and these are also performing assets.

No rules and procedures been violated. After all the news has come, rating agencies have reaffirmed the highest ratings on LIC HF. We also appointed a new CEO immediately.

Any need to change the loan approvals process in LIC HF?

According to our present examination and our committee's investigation, anything drastic is not called for now.

Of course, in the life span of a company, it is an evolutionary process. Depending on the market demand and the market changes and the customer changes, companies keep on changing the procedures and systems to meet the rising expectations.

Any plans for increasing your stake in LIC HF as you can raise it up to 50 per cent and that may help boost investor confidence?

At present, we are at 35 per cent. We would like to take a call on that. We would have to decide on that. That call will have to be taken. We need to go the Government. We will need both Government and IRDA permission to increase our stake.

There were news reports on steep erosion of value in some of the LIC Mutual Fund schemes. Any comment?

Historically, LIC Mutual Fund had a larger portfolio of liquid funds unlike other companies. Therefore, the change in SEBI regulations had a greater impact on our mutual fund company compared to others. Among 40 mutual funds, LIC MF was sixth in the terms of market share. When new regulations came, it affected us. We are taking drastic steps to arrest the erosion. We are going to have a tie up with Nomura Holding. With that, international expertise in fund management and product development and IT capability, will come. I am sure with that getting finalised we will be able to revamp our mutual fund business.

Nomura's investments have come in?

It is almost in the final stage. The MoU has been signed. Other legal formalities like SEBI and RBI permission are over.

Have these developments in any way affected the partnership?

Nothing of this has affected the partnership. It should be finalised soon.

Whatever happened here, we have informed our partner. They are standing by the commitment they made.

We are bringing in Nomura because they have expertise in equity funds. And if you look at LIC MF, we are predominantly in debt funds, that too liquid and liquid plus. So our focus now will be to bring in innovative products under equity. The Chief Investment Officer and head of equity will be from Nomura. Head of debt will be from LIC.